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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Allied Dunbar Assurance Plc v. Superglass Sections Ltd [2003] ScotCS 276 (05 November 2003) URL: http://www.bailii.org/scot/cases/ScotCS/2003/276.html Cite as: [2003] ScotCS 276 |
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OUTER HOUSE, COURT OF SESSION |
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CA218/01
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OPINION OF LORD EASSIE in the cause ALLIED DUNBAR ASSURANCE PLC Pursuers; against SUPERGLASS SECTIONS LTD Defenders:
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Pursuers: Clive; Semple Fraser W.S.
Defenders: Ross; Archibald Campbell & Harley W.S.
5 November 2003
[1] By a lease dated 6 July and 4 August 1993 and registered in the Books of Council and Session on 22 September 1993 Caledonian Land Properties Limited let to the defenders, Superglass Sections Limited, premises in Clydebank known as Unit 2, Block 13, Clydebank Business Park. Subsequently, in 1996, Caledonian Land Properties Limited granted to the pursuers, Allied Dunbar Assurance plc, a 999 year lease of the whole of the Clydebank Business Park for a substantial grassum and a
token annual rent. That lease, dated 23 September 1996, was registered on 20 February 1997 in the Books of Council and Session and the Land Register. It was an interposed lease in terms of Section 17 of the Land Tenure Reform (Scotland) Act 1971. In effect the present pursuers became entitled to the landlord's interest under the 1993 lease to the present defenders.
[2] Clause (Second) of the 1993 lease in favour of the defenders - hereinafter "the Lease" - is concerned with the duration of the let and is in these terms:-
"(Second) The duration of this Lease shall be for the period from and after the Eleventh day of November Nineteen Hundred and Ninety One (which is declared to be the Tenants' date of entry hereunder notwithstanding the dates hereof) to and including the Eleventh day of November Two Thousand and Eleven. PROVIDED ALWAYS that Superglass Sections Limited shall be entitled to terminate and bring an end to this lease as at 11 November 1996 on giving to the Landlords not less than nine months' prior written notice to that effect and, in the event that the foregoing right to terminate is not exercised by the said Superglass Sections Limited either party shall be entitled to terminate and bring an end to this Lease as at 11 November 2001 on giving to the other party not less than nine months' prior written notice to that effect but any such termination shall be without prejudice to the rights of the parties in relation to any antecedent breach of their obligations hereunder."
"On behalf of and as instructed by the Tenant, we hereby give you notice in terms of Clause (SECOND) of the Lease that the Tenant hereby exercises its option to terminate and bring the Lease to an end as at 11 November 2001 and the Tenant will remove from the Premises as at that date."
"(Eight) At the expiry or sooner termination of the foregoing Lease ..... to surrender to the Landlords the leased subjects together with all additions and improvements made thereto and all fixtures (other than trade or tenant's fixtures affixed by the Tenants or any sub tenant which shall be removed by the Tenants) in or upon the leased subjects or which during the currency of the foregoing Lease may have been affixed or fastened to or upon the same and that in such state and condition as shall in all respects be consistent with a full and due performance by the Tenants of the obligations herein contained ..."
"WHEREAS:-
A you have exercised your option to terminate the Lease as at and with
effect from the Break Date; and
B clause (Eight) of Part III of the Schedule to the Lease (herein the 'Removal Clause') obliges you as Tenant at the expiry or sooner termination of the Lease (here the Break Date) to (i) give the Landlord vacant possession of the Premises as therein provided for and (ii) return the Premises to the Landlord in a state and condition that accords with your obligations under the Lease and without prejudice to that generality to make good all damage cause by your removal;
Without prejudice to the Landlord's whole rights and remedies available to them we hereby intimate on behalf of and as instructed by the Landlord that they require you to carry out all the dilapidations and other works as more particularly described in the Terminal Schedule of Dilapidations and Wants of Repair annexed and subscribed as relative here to, which dilapidations shall require to be completed prior to the Break Date".
[7] The issue discussed in that debate stems from the terms of the second and third conclusions of the Summons and the averments made by the pursuers in support of those conclusions. The first conclusion seeks a declarator that as at 11 November 2001 the defenders were in material breach of contract in respect of what may shortly be described as their repairing obligation. The second and third conclusions are in these terms:-
"2 For declarator that being in material breach of contract the defenders were not entitled to hold the said lease [i.e. the Lease] as terminated and brought to an end on 11 November 2001.
3 For declarator that the said lease between the parties remains in full force and effect and has done since 11 November 2001."
Following averments respecting the failure of the defenders to attend to a number of the items on the pursuers' Schedule of Dilapidations and Wants of Repair, to which I have already referred, the condescendence annexed to the summons proceeds, in its article 9, to set out these averments;-
"The defenders were, accordingly, in material breach of contract as at 11 November 2001. They were not entitled, whilst they were in material breach of contract to hold the lease as terminated and brought to an end in term of clause Second. The defenders remain in material breach of contract. The pursuers seek declarators to that effect. The lease remains in the full force and effect. The pursuers seek a declarator to that effect."
The pursuers go on to advance a claim for damages for the costs of carrying out the works desiderated by them but that claim is expressed as proceeding on the esto basis that the lease terminated on 11 November 2001.
[8] In opening the debate counsel for the defenders challenged the soundness of the pursuers' contention in their pleadings that despite the fact that notice had been duly given terminating the Lease on 11 November 2001, the Lease nonetheless continued, for some unspecified period, on the basis that the defenders were, on that date, allegedly in breach of the repairing obligation. In summary, counsel observed that it was not contended either that defenders were not entitled to exercise the break option by giving notice in February 2001 or that they had not given proper notice. Once notice had been duly given (by either party) terminating the Lease on 11 November 2001 the duration of the Lease expired on that date and the Lease contained no mechanism for reversing or undoing that definition of its duration. The right to given notice of termination was unilateral, in respect that it required no acceptance or other performance on the part of the other party to the Lease. Further, in respect that Clause (Second) referred to the giving of notice being without prejudice to rights arising by reason of antecedent breach, the contract clearly envisaged its being effectively terminated by notice, irrespective whether the notice-giver was in breach of his obligations. Counsel for the defenders then sought to anticipate possible argument by counsel for the pursuers based on the principle of the mutuality of contractual obligations whereby one party was enabled to withhold doing his part of the contract for so long as the other was in breach of the countervailing obligations on his part. Counsel for the defenders referred to a selected number of authorities, mainly the more recent authorities, on the principle of mutuality of obligations, to some of which I shall subsequently refer. Put very shortly, as I understood it, the position of counsel for the defenders was that since the right to exercise the "break" was unilateral and since on termination, at the break, there was no performance required of the landlord, the principle of mutuality of contractual obligations had no application in this case. In so far as it might be suggested that a failure by a tenant to execute his obligations, such as a repairing obligation, prior to the termination date of the lease prevented the termination from taking effect and resulted in a continuation of the period of the lease, no support for that proposition could be found in any of the text books and decisions on the law of landlord and tenant. In so far as the action sought declarator in terms of the second and third conclusions it was thus irrelevant.[9] In response, Mr Clive, for the pursuers, indicated that the pursuers' contention that the lease continued in force after 11 November 2001 notwithstanding the due giving of notice of its termination on that date was derived from the principles or rules relating to the mutuality of obligations in contracts. Counsel acknowledged that the invocation of those principles or rules in the circumstances of the present case was, as he put it, novel and in light of that novelty his motion was that a proof before answer should be allowed.
[10] The principle of the mutuality of obligations had, said counsel, been formulated in various ways. The more recent authorities, to which counsel for the defenders had referred by way of anticipation, namely Bank of East Asia Ltd v Scottish Enterprise 1997 SLT 1213 and Macari v Celtic Football and Athletic Co Ltd 1999 SC 628, made clear that it was a question of circumstances whether a particular obligation on one party to a contract had a counterpart in an obligation on the other party which would justify the one party from withholding performance of his obligation for so long as the other was in breach of his counter-vailing contractual responsibilities. However, said counsel, it was not clear that historically the mutuality principle was confined to the withholding of performance by the innocent party. In British Motor Body Company Limited v Thomas Shaw (Dundee) Limited 1914 SC 92 one found in the opinion of the Lord President, 926, the general statement that a party seeking implement of a contract was bound to fulfil his part of it. In Penman v Mackay 1922 SC 385 Lord McKenzie referred, 394, to a
".....well established doctrine of our law, which is an equitable doctrine, that, if a party to a contract seeks to plead a clause in his favour, he cannot do so when he himself is in breach of a material stipulation in the contract".
Counsel further referred to McCall's Entertainments (Ayr) Limited v South Ayrshire Council (No 1) 1998 SLT 1403 in which the Lord Ordinary (Hamilton) allowed a proof before answer on the issue whether alleged breaches of an obligation on the tenant, inter alia, to maintain the leased subjects were sufficiently material to, and interdependent with, an option to purchase the leased subject as to disable the tenant from exercising that option. As I understood counsel for the pursuers, the question was whether the mutuality principle was necessarily restricted to entitling the innocent party to withhold performance of his part of the contract, or disabled the party in breach from taking any advantage under the contract irrespective whether that advantage had any counter prestation. Resolution of that question, said counsel, might better await the outcome of proof before answer.
[11] In approaching these competing positions it is, I think, important to recognise that it is not contended by the pursuers that by reason of some antecedent and then current breach of their obligations the defenders, as tenants, were disabled in and prior to early February 2001 from exercising the mutual "break option" by giving notice of termination of the lease to take effect on 11 November 2001. Mr Clive, in my view rightly, did not suggest that there was any counterpart performance which the landlord could withhold on being given notice of termination. It was a unilateral right with no counterpart. In a passage in Gloag on Contract (2nd edition) to which my attention was drawn by counsel for the defenders and which occurs at p407, in the chapter (xxiii) relating to the mutuality of contractual obligations, it is stated that
"The general doctrine that both parties must be bound, or neither, has no application to cases where it is expressly provided that one of the parties may, in certain contingencies, have the option of rescinding the contract. Thus a break in a lease in favour of landlord or tenant only is a lawful form of contract."
Further, any suggested analogy between an option to buy the leased subject and the possible correlative effect of an obligation to maintain the subject on the purchase price payable under the option, such as was at issue in McCall's Entertainments, and an ordinary break option in a lease is, in my view, unsound. The position of landlord and tenant respecting the tenant's repairing obligation is constant, whether or not either of them elects to accelerate the ish. And, of course, the giving of nine months' notice of termination does not mean that the tenant cannot fulful any outstanding obligations of repair.
[12] Due notice having been given by the defenders of their election to advance the ish from its ultimate date to the earlier date of 11 November 2001, I consider counsel for the defenders to be correct in his submission that the Lease provides no basis or mechanism whereby the fixing of the date 11 November 2001 as the ish could competently be reversed or altered (absent, of course, independent agreement between the landlord and the tenant). There is no peculiar provision in the Lease suggesting that termination might only take place on the stipulated date of termination if neither party were in breach of their obligations under the Lease at that date.[13] Accordingly, it appears to me that, if valid, the pursuers' proposition that the existence of a material breach of contract on the part of the tenant at the ish results in the continuing of the tenancy must have wider, general application. The converse must also logically apply, namely that a breach by a landlord of his obligations - e.g. a failure to repair or maintain the common parts of a shopping centre - would entitle the tenant remain in occupation, notwithstanding the expiry of the term of the lease. As counsel for the defenders pointed out, there is no trace of any such doctrine in the law of landlord and tenant. And understandably so. For there is then no clarity or certainty as to the duration of the rights of occupancy. That uncertainty is also inherent to the terms of the declaratory conclusions in the present action.
[14] It was not suggested that there was any support for the pursuers' position in the general law of landlord and tenant. The argument for the pursuers was said by their counsel to proceed in reliance on the principle of mutuality in the performance of contractual obligations. However, in my view, where a lease has come to an end at its expiry date, there can be no mutuality respecting some future continuation of the right or obligation of occupation. The right or obligation of occupancy has simply terminated. Viewed from another perspective, the present defenders do not seek to assert any right of possession or continuing occupation. They have yielded possession in terms of the provisions of the contract relating to duration of occupation and possession. They do not seek implement of any term of the contract involving any performance by the pursuers. Accordingly, even if the mutuality principle may be given the wider extent suggested by counsel for the pursuers of debarring a party in breach of one term of the contact from suing for implement of the right given to him by another term of the contract, unrelated to the obligation breached, (which would not readily accord with the modern authorities), that argument fails for the simple reason that the defenders are, indeed, defenders advancing no claim. The principle of mutuality of contractual obligation is essentially a defence. It involves a riposte. In my opinion it cannot be subverted into the imposition of an additional contractual obligation to continue possession of the property, after the expiration of the lease, and to pay rent for that indefinite continuation. If a tenant quits leaving the subjects in a state of disrepair, contrary to his contractual obligation to maintain and repair, the inability of the proprietor to let while restoring the premises to a tenantable state during the period in which the repairs are ongoing may found a claim for loss of rent, by way of damages. But that is very different from the contention of the present pursuers, which asserts the continuing of a lease.
[15] In these circumstances, assuming the defenders to have been in material breach of their repairing obligations on 11 November 2001, I am satisfied that the pursuers' contention that, on that account, the Lease continued to endure after 11 November 2001 is unsound in law. I shall therefore uphold the defenders' second plea in law and repel the pursuers' first plea in law insofar as that plea extends to the second and third conclusions of the summons. I shall appoint the case to be put out By Order in order to determine future procedure in the action. Any motion relating to the expenses of the debate may be heard at that By Order hearing and I shall meantime reserve expenses.
